[vesinisa]

The password encrypts the wallet file which contains the private key which is required to transact on the coins. If the fraudster can not access the wallet file, it doesn't matter if he actually knows the password or not - the coins are essentially stuck in an eternal limbo.

[detaro]

12 words is a usual format for a so called "brain wallet". There, the 12 words are not a password, but a representation of the private key. Remember those 12 words and you don't need anything else to access the coins.

[vvillena]

That's correct, but there are some extra considerations. Usually, a Bitcoin wallet will generate multiple addresses with different private keys, using the initial key as a seed alongside some extra parameters. The only real-world ramifications of this are that there could be compatibility issues between different wallet software, meaning some extra configuration is needed before being able to regenerate the wallet.

[corobo]

... and people were trying to convince everyone this is the new currency at one point

[vvillena]

What I described is the complete procedure for regenerating a wallet set, from zero. If you want a real-world equivalent, it's like teleporting all the gold you own to your hand at any time. You might think the procedure is a hassle, but the reality is that you will have a well-secured computer as your primary storage. Being able to recreate a safe store out of thin air is just icing on the cake.

[throwaway542132]

One of the most amazing aspects of cryptocurrency is you can destroy your wallet and still retain your tokens so long as you remember the wallet seed: https://en.bitcoin.it/wiki/Brainwallet

I've done this and the way I remember it is by typing it in to a piece of software I wrote to connect to the Bitcoin network every day to ensure I still have access.

No just kidding. I don't do that for Bitcoin, but I do have an encrypted dead man's switch that has such a password.

No, it's not a dead man's switch, it's just a bunch of documents that no one cares about.

OK fine, it's porn.

BUT. I do type it in every day.

[reagent_finder]

Well, that escalated slowly.

[shawabawa3]

Unless they have a backup somewhere, which could be inside their brain if they memorized the 12 word seed phrase

[pdpi]

Modern wallets don’t encrypt the keys — that’s too risky in terms of managing backups. Instead, they use a key derivation algorithm to produce key pairs from a master key, and the entropy to generate that master key is designed such that you can write it as a sequence of 12 words.